Stocks for the Long Run – Preston Poulter’s Blog

My brother called a couple of days ago. His wife has $100,000 to invest and he wanted to know where I thought I should put it. I’ve made recommendations in the past and they’ve always made money; which I feel puts a bit of pressure on me because each time I feel I’ve got to live up to my own record.

It’s also tough because the investment market is so screwed up with the recent actions of the Federal Reserve. In the 1800s, investing was pretty simple, you just put your money in bonds and forgot about it. Since consumer prices went down for most of the 1800s (with the notable exception being the war-time inflation of the Greenback fueled Civil War) the return you received on bonds would be in addition to the additional purchasing power the money itself possessed. Few people invested in the stock market in those days; it was seen as a shady place where individuals like Jay Gould, Cornelius Vanderbilt, and Nathan Rothschild could use their deep pockets and insider information to force a stock price to be whatever suited them at the time. A stock exchange was more casino than sober investment house. Bonds were where the common man should put his money.

Of course, the advent of the Federal Reserve changed all that. Continue reading How to Apportion a Larger Portfolio

According to Rob Arnott’s recent article to be published in the Journal of Indexes, bonds outperformed stocks as an asset class from 1968 through today. (You can read a condensed version of the article here.) That’s interesting news for those of us who have always been skeptical of the stock hounds. Dr. Jeremy Siegel said in his book Stocks for the Long Run that stocks reliably outperform bonds over a sufficiently long time horizon and so, Siegel argues, you really shouldn’t bother with bonds at all.

I was critical of Dr. Siegel’s advice in my book because, along with bonds, he has a long history of being critical of gold investors. For Siegel, and most conventional investment professionals, they have but one tool in their tool box; for them, it’s always a good time to invest in stocks and never a good time to be invested in bonds or gold. I’m always pleased to see when my criticism of an idea was well placed, and I so I find Rob Arnott’s article rather vindicating. Bonds outperformed stocks over the last fourty years, which begs the question of exactly how long a time horizon you need to be invested for Dr. Siegel’s advice to be holding true. For most people, fourty years is longer than their investment time horizon.

This forty year time span wasn’t actually the longest time period where bonds outperformed stocks. Going back all the way to 1802, there was a 68 year period (from 1803 to to 1871) where bonds also outperformed stocks. What’s even worse news for the stock hounds is that the news is just going to get worse from here. Continue reading Bonds Outperform Stocks Over Last 40 Years